IRS Reasonable Cause Penalty Abatement: How to Get Tax Penalties Removed

By Yarik Yarosh, CPA ·September 5, 2026 ·5 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

IRS penalties aren’t final. The Internal Revenue Code provides two primary paths to penalty removal: first-time penalty abatement (FTA), which requires no explanation beyond a clean compliance history, and reasonable cause abatement under IRC 6651(a) and related sections, which requires demonstrating that the taxpayer exercised ordinary business care and prudence but was unable to comply due to circumstances beyond their control.

✓Key takeaway

Penalty abatement framework:

First-time penalty abatement (FTA):

Available for failure-to-file, failure-to-pay, and failure-to-deposit penalties
Requirements: (1) no penalties in the prior 3 tax years, (2) all required returns filed or valid extensions filed, (3) all tax paid or arranged (installment agreement)
No explanation needed. The 3-year clean history is the only requirement.
Request by phone (call the number on the penalty notice) or by letter
Success rate: approximately 90%+ when eligibility criteria are met
Can only be used once per penalty type per 3-year cycle

Reasonable cause abatement (when FTA is unavailable):

Available for most penalties (failure-to-file, failure-to-pay, accuracy-related, information return penalties)
The taxpayer must show: (1) the failure was due to reasonable cause and not willful neglect, AND (2) the taxpayer exercised ordinary business care and prudence
Evaluated under IRM 20.1.1.3 (Internal Revenue Manual)

What qualifies as reasonable cause:

Death, serious illness, or incapacitation of the taxpayer, a family member, or the tax preparer
Fire, natural disaster, or civil disturbance that destroyed records
Inability to obtain necessary records (from third parties, government agencies)
Reliance on the erroneous advice of a tax professional (the taxpayer must show: they gave the professional complete information, the professional gave specific advice that the taxpayer relied upon, and the reliance was reasonable)
IRS error (incorrect information from an IRS agent, misdirected payments)
Postal or electronic filing system failure
Ignorance of the law (only in limited circumstances where the law is complex, new, or where the taxpayer made a good-faith effort to comply)

What doesn’t qualify:

“I forgot”
“I was too busy”
“I didn’t know I needed to file”
“My accountant didn’t tell me” (without specific facts showing the reliance was reasonable)
Financial hardship (for failure-to-file penalties; it’s relevant for failure-to-pay penalties)

How do you write an effective reasonable cause letter?

Hypothetical example

Round numbers. For current guidance, see IRS penalty relief information. A small business owner filed Form 941 (quarterly payroll tax return) 45 days late. The IRS assessed a $2,400 failure-to-file penalty. FTA isn’t available (a penalty was assessed 2 years ago).

Weak letter (likely denied): “We’re sorry for the late filing. We were very busy with client work and our bookkeeper was behind. We request that the penalty be abated.”

Why this fails: “Too busy” isn’t reasonable cause. “Bookkeeper was behind” doesn’t explain the specific circumstances. No dates, no documentation, no evidence of ordinary business care.

Strong letter (likely approved):

“We’re requesting abatement of the $2,400 failure-to-file penalty for Form 941, Quarter 2 2025, for [Business Name], EIN [XX-XXXXXXX].

Facts: Our bookkeeper, [Name], who has prepared all quarterly payroll filings since 2020, suffered a stroke on June 28, 2025. She was hospitalized at [Hospital Name] from June 28 through July 15, and was unable to work until August 20, 2025. We were notified of her hospitalization on June 30.

Steps taken: Upon learning of the situation, we contacted [three accounting firms] on July 1-3 to find a replacement preparer. Due to the July 15 filing deadline, and the need to transfer payroll records and grant system access, the earliest available appointment was August 1. The Form 941 was filed on August 29, 2025.

Ordinary business care: We have filed all prior Form 941 returns on time since the business was established in 2018. We took prompt action to find a replacement preparer within 3 days of learning about the incapacitation. The 45-day delay was caused entirely by the incapacitation and the time required to transfer payroll processing.

Supporting documentation enclosed:

Hospital admission record for [Bookkeeper Name]
Communication records (emails to replacement firms, dated July 1-3)
Engagement letter with replacement preparer, dated August 1
Filing history showing timely 941 filings for all prior quarters

We respectfully request abatement of the $2,400 penalty under IRC 6651(a).”

Why this works: Specific dates, named individuals, documented steps taken, evidence of ordinary business care (prompt action), supporting documentation, and the circumstance (medical emergency) is clearly beyond the taxpayer’s control.

Success rate for well-documented reasonable cause: approximately 60-75%, depending on the IRS examiner and the strength of the documentation.

Illustrative numbers only, not a real client and not advice for your facts.

What options are available if I can’t pay my tax bill in full?

The IRS offers several payment alternatives. An installment agreement (Form 9465) lets you pay over time, with guaranteed approval for balances under $10,000 if you can pay within 3 years, and streamlined approval for balances under $50,000 payable within 72 months. An Offer in Compromise (Form 656) settles the debt for less than owed, but the IRS accepts only about one-third of applications because you must prove you can’t pay the full amount through income or assets. Currently Not Collectible (CNC) status suspends collection when you demonstrate that paying would create financial hardship, though interest and penalties continue accruing. Penalty abatement (first-time or reasonable cause) can reduce the amount owed by removing failure-to-file and failure-to-pay penalties, which often constitute 25-47% of the balance. Interest is charged on all unpaid balances and generally cannot be abated, which makes resolving tax debt sooner always less expensive.

Related guides:

IRS Installment Agreements: Payment Plans for Small Businesses That Owe Back Taxes

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Cite this page

Yarik Yarosh, CPA. "IRS Reasonable Cause Penalty Abatement: How to Get Tax Penalties Removed." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/small-business-reasonable-cause-penalty-abatement

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.